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What is compliance?

What does the term 'compliance' describe?

The term compliance describes the ability to act according to an order, set of rules or request.

In the context of financial services businesses compliance operates at two levels.

Level 1 - compliance with the external rules that are imposed upon an organisation as a wholeLevel 2 - compliance with internal systems of control that are imposed to achieve compliance with the externally imposed rules.

What duty, objective and responsibility does a Compliance Officer fulfill?

DUTY - The Compliance Officer has a duty to his employer to work with management and staff to identify and manage regulatory risk.

OBJECTIVE - the overriding objectives of a compliance officer should be to ensure that an organization has systems of internal control that adequately measure and manage the risks that it faces.

RESPONSIBILITY - The general responsibility of the Compliance Officer is to provide an in-house compliance service that effectively supports business areas in their duty to comply with relevant laws and regulations and internal procedures.

What are the five key functions of a Compliance Department?

To identify the risks that an organisation faces and advise on them (identification)

To design and implement controls to protect an organisation from those risks (prevention)

To monitor and report on the effectiveness of those controls in the management of an organisations exposure to risks (monitoring and detection)

To resolve compliance difficulties as they occur (resolution)

To advise the business on rules and controls (advisory)

What is Corporate Governance?

Corporate governance is a highly inclusive concept that covers a number of different aspects about the way in which an organisation is managed, directed and governed.

It can be described as a set of relationships between a company’s management, board, shareholders, and other stakeholders, which provides the structure through which the objectives of the company are set. Furthermore it provides the means of attaining and monitoring performance against those objectives.

What does the term 'regulation' mean?

The term ‘regulation’ generally refers to a set of binding rules issued by a private or public body with the necessary authority to supervise compliance with them and apply sanctions in response to violation of them.

What are five generally accepted key core objectives of financial services regulation?

Although there is no unified theory of financial services the key objectives of regulation is as follows.

The protection of investors/consumers

Ensuring that the markets are fair, efficient and transparent

The reduction of systemic risk

The reduction of financial crime

The maintenance of consumer confidence in the financial system

What are three key attributes of effective regulation?

Effective regulation is regulation that:

Contributes to the fulfillment of one or more of the core objectives of financial services regulation.

Maintains an open market that can be participated in by the widest range of appropriate participants with no unnecessary barriers to entry and exit and

Provides an equal regulatory burden on all participants that meet minimum criteria.

What is primary legislation?

Primary legislation refers to the Law, Act or Ordinance passed by the legislative of a particular jurisdiction.

What is secondary legislation?

The legislature in many jurisdictions has the power to delegate or subordinate law making powers to other agencies that may then make delegated or subordinate legislation often referred to as “secondary” legislation. In the context of financial services, secondary legislation is generally legislation that has been drafted by a regulatory body empowered to do so pursuant to the primary law by which it is established.

What are regulatory codes or rules?

Codes generally set out the broad principles by which a regulated business is expected to conduct its business.

Rules are generally very detailed and relate to every regulated activity and function.

What are regulatory guidance notes?

Guidance can either be in the form of a statement of best practice or a statement of minimum best practice.

Occasionally a regulatory authority will feel compelled to issue detailed guidance to regulated businesses on how it expects them to actually discharge their legal and regulatory obligations. Anti money laundering and terrorist financing is one area where most regulators around the World have issued guidance.

What functions does a regulator usually fulfill?

In broad terms regulators fulfill the following seven functions:

They lay down rules or principles that determine who can conduct financial services business

They authorise financial services businesses

They lay down the rules by which regulated financial services businesses must conduct their business (both prudential and conduct of business rules)

They supervise compliance with the rules either through desk based supervision or onsite inspections or a mixture of the two

They conduct investigations into suspected breaches of the rules sometimes in conjunction with other law enforcement bodies

They enforce the rules

They co-operate and exchange information with other regulators

What steps does a regulator utilize in it's supervisory process?

Many regulators adopt a risk-based approach to supervision and follow a process of supervision that can be divided into the following four steps:

Step 1. Defining the objectives

Step 2. Obtaining information from regulated businesses

Step 3. Assessing the risk that regulated businesses face and pose

Step 4. Taking action in response to the risk assessment

What two key methods does the regulator utilize in supervising regulated businesses?

There are essentially two methods by which compliance with regulatory rules is monitored – Onsite supervision and Offsite desk based supervision.

1. On site supervision entails visits by the staff of a regulator to the offices of a regulated entity, with the objective of satisfying etc

What are the two commonly accepted objectives of prudential regulation?

To maintain a low probability of insolvency and any consequential loss to an organisation’s ultimate customers; and

To ensure the resolution of the position of any organisation whose viability is impaired, while protecting the interests of their customers to the maximum possible extent.

What are conduct of business rules?

Conduct of business rules govern the manner in which a business conducts itself in its relationships with consumers. Conduct of business rules impose minimum standards of acceptable conduct upon regulated businesses.

What aspects of the activity of a financial services business would be subject to the conduct of business rules?

Advertising

Customer communications

Customer agreements

Conflicts of interest

Customer understanding and suitability

Customer dealings

Customer due diligence

Client assets and money

Breaches, errors and/or near misses.

What is regulatory enforcement?

Enforcement is a necessary product of the process of authorisation and supervision, in the sense that a regulator must enforce compliance with rules. Enforcement is as much about investigating, gathering and sharing information as it is about imposing penalties.

What five processes does regulatory enforcement normally entail?

Enforcement generally entails the following:

Inspection

Investigation powers

Surveillance powers

The imposition of corrective or remedial action

The imposition of penalties

What are the common enforcement powers of a regulator?

Power to inspect and request information

Power to seek orders to compel a business to comply

Power to remove directors and auditors;

Power to appoint an administrator

Power to impose administrative sanctions and / or to seek orders from courts or tribunals;

Power to initiate or to refer matters for criminal prosecution;

Power to suspend operations or trading

What six basic factors should you consider when looking at risks in your organisation?

Learn more about anti money laundering and compliance with ICA qualifications.

If you’re considering developing your career in compliance, find out more about joining ICA’s global community here. Becoming a member today will give you access to a wealth of knowledge, tools, resources and practical support to help develop your career. Being a member of ICA also demonstrates a commitment to the highest standards of practice and conduct and enhances your professional reputation and employability.

For 14 years we’ve looked the same but now we’d like to introduce you to our new logo and branding. We hope you like it.

ICA was established in 2001 and since then a lot has changed in the world of regulatory and financial crime compliance. We’ve seen the compliance profession develop and grow and as an Association we have evolved too.

Our new logo represents our heritage as a professional and awarding body as well acknowledging the new direction for the Association of the future. Over the coming months we’ll be launching new qualifications, new membership levels and a brand new CPD portal.

Our members remain at the heart of everything we do and we hope you will continue to support us and grow with us.